You should see an accountant on this one - you may be able to avoid taxes on all of your gain since you only rented for 4 years. You actually lived in the house for 1 out of the past 5 years and in some circumstances you may be able to erase (not defer) up to $125,000 of gain. This would especially apply if you moved out because of a job change or disability (I think). Plus there's the issue of depreciation. You have to deduct the depreciation over the past 4 years from your basis, which effectively increases your gain. Did you include that in your $20,000?Find an accountant who is familiar with the above. Interview them on the phone. I have had bad tax advice that cost me thousands and I have had wonderful advice that saved me thousands. Don't wait till March.

BTW you can deduct your stock losses against house gain. But find out from a pro first.

thanks for the advice. The reason we rented was because we could not sell it for a fair price when I moved to a new job. I did include depreciation in my net gain, but I think I underestimated the amount. We made some improvements to the house while we lived in it and after we started renting. I deducted this amount from the proceeds of the sale.

I thought you had to live in a house 2 out of the past 5 years to defer the gain. I've searched the IRS site for information, but did not find anything which describes my situations.

I am not a tax professional. I did this once on my personal taxes, which I make a lot of mistakes on. I recommend you see a tax pro because you'll be dealing with this issue, with recaptured depreciation, and with schedule D gains and losses.

My source is J.K.Lasser, 2000 tax year. So you need to get the current one or find the related IRS pubs (pubs 544 and 550 and Schedule D), to start with.

>>>The reason we rented was because we could not sell it for a fair price when I moved to a new job.

Lasser, p. 473: "If you are forced to sell your principal residence before meeting the 2 out of 5 year ownership and use tests because of a change in your place of employment or health or unforeseen circumstances, the exclusion is prorated.... The IRS allocates the exclusion on a daily basis..."Since the exclusion on personal residences is $250K every so often (2years?), if you work that out over 2 years, you get about $10K of excluded gain for each month that you lived in the house. So right there you will owe no taxes on the gain.

>>>I did include depreciation in my net gain, but I think I underestimated the amountI did include depreciation in my net gain, but I think I underestimated the amount.

Get your tax records and find out. What I do next is to make and Excel spreadsheet of Schedule D and start working out the numbers. You have to load in the whole Schedule D calculations, though, and it gets tricky. The depreciation makes the whole thing more complicated and I don't know if it is allowed to be excluded as discussed above. It has a special tax rate of 25% on Schedule D. So I recommend getting your stuff all on a spreadsheet, or at least in a proper filing system and added up to reduce the fees, and find a good tax accountant. You still have time before year end to work it out and see if selling stocks will benefit you.